Assessing Mortgage Finance in Nigeria

One of the major factor facing housing developments in this part of the world is the issue of finance. Housing and development finance. Real estate development involves a high capital outlay. Though it is the desire and dream of almost everyone to own his or her own house, the means of achieving this is sometimes hampered by lack of sufficient funds. This has contributed to the rise in the shortage of housing accommodation. In 1991 there were about Eight (8) million units of housing shortage. In 2007, this has risen to over Twelve (12) million units.1

The percentage of people committing their own personal funds of life savings to building their own houses is quite low. Most often, they are not able to complete the project or may have to scale down on their original plans due to the lack of sufficient funds.

The above notwithstanding, the level of building development has not dwindled. The days people are able to still be involves in real estate development with the aid of mortgage loans. Howbeit, the percentage of developers accessing these loans is still low.

Since independence, various governments, in bid to stem this trend embarked on a lot of programmes and policies aimed at providing low-cost housing as well as, owner occupier housing to cater for the needs of the public. All these efforts have not really stemmed the tide.

It is in a bid to provide citizens with access to loans to develop their own houses that government promulgated the National Housing Decree (No. 3, 1992). This law was aimed at providing a pool of funds for the construction, purchase or rehabilitation of their own housing needs. The fund is a contribution by government, insurance companies, and banks operating in Nigeria. The law also relies exclusively on the contribution of 2.5% of workers basic salaries over a period of time for the workers to be eligible to qualify for the mortgage loan. This gave rise to the re-structuring of the Federal Mortgage Bank of Nigeria (FMBN) as well as, the establishment of the Primary Mortgage Institutions (PMI) we see them today.

To be qualified for loan, the individual must have contributed through any of these PMI’s for at least 6 months, and such contribution up to about 20% of the cost of the desired development. The PMI would then contribute the balance of about 80% but not exceeding 90% of the cost or value of the property, as mortgage through the Federal Mortgage Bank (FMBN). The loan is expected to be repaid in 20-25 years at an interest of about 6% until it is liquidated.

However, there are challenges here. The maximum loan that an individual can access is a paltry Five Million Naira ($). The borrower must have a valid title document. He must also obtain and present the necessary and appropriate plans for the development which must conform to the planning laws and regulations.

The problem here is that the cost acquiring the land may even be close to, or more than the loan he is trying to access; given the high cost of land in most urban areas. The process and period of obtaining these loans may make nonsense of the sum borrowed as inflation, global economic meltdown and changing building trend may affect its efficient use.

The only option therefore left for most developers presently is accessing mortgage finance from commercial banks or their subsidiary mortgage arms at high interest rate. The NHF fund is just boxed up somewhere leaving the sea of people who require it not able to gain access to it.

The FMBN according to it’s Managing Director/CEO has (as at January 2009) disbursed  a total of N41,958,756 to primary mortgage institutions (PMIs) and estate developers, representing about 52 % of the N79,515,416,273 approved2. He also noted that home ownership in Nigeria is currently just about 25% of the populace (143 Million). 3 Nigeria requires about 700,000 units of houses per annum to record any appreciative improvement on housing delivery.

Housing ownership can be achieved with government and revisiting present mortgage finance schemes, as well as redefining the roles the FMBN and PMIs. Land acquisition /ownership laws must be loan must be reviewed to remove encumbrances, lengthy transfer.

1. Finance key to house ownership in Nigeria –Mr. Moses Ataghar, MD/CEO FMBN (2007)